Fed statement provides fodder for hawks and doves

Federal Reserve Chairwoman Janet Yellen is an equal opportunity central banker. The statement she crafted containing gifts for both hawks and doves.

On the hawkish side, the Fed statement said low inflation is much less of a concern. On the dovish side, the Fed said that there was still too much slack in the labor market.

As a result, economists were split down the middle on the statement, a reaction reminiscent of dueling headlines in the New York Times and Wall Street Journal and Washington Post when Alan Greenspan would appear before Congress.

Jeffrey Cleveland, chief economist at Payden & Rygel, said the statement was “dovish on balance.”

The statement gave no signal the Fed has reached a pivot point, signalling rate hikes sooner, he said.

On the other side, Michelle Girard, economist at RBS, detected “baby steps in the direction of setting the table for the eventual start of policy normalization.”

“The few changes made to the FOMC statement suggested greater comfort with recent economic developments and progress towards the Fed’s objectives,” Girard said.

She noted the Fed is less worried about inflation remaining below 2%.

Others noted the balance in the message.

“The dovish message about slack in the labor markets was balanced by a somewhat more hawkish message on inflation,” said Michael Gapen, an economist at Barclays.

But Paul Ashworth, chief U.S. economist at Capital Economics, sees the hawks in ascendency.

“Subtle changes to the statement, and Philadelphia Fed President Charles Plosser’s dissent suggest that the hawks are beginning to push their case harder,” he said.

Eric Green, head of U.S. rates and economic research at TD Securities, said the message was simply designed to give the Fed breathing room.

“If there is a takeaway there it is that the Fed wants flexibility, will continue to lean toward growth over inflation, and is biding time,” he said.